Philly Developers Call For City Subsidies As Multifamily Starts Hit 12-Year Low

With the Philadelphia City Council back from its winter break, some local multifamily players hope the body will pass legislation to help revive the city's frozen apartment construction pipeline.

New multifamily projects have been hampered over the last year by a collision of macroeconomic trends — including stubbornly high interest rates, elevated construction costs and skyrocketing insurance premiums — with local issues like slim multifamily development margins and sometimes restrictive zoning.

As a result, new apartment construction has slowed dramatically, and Philadelphia developers told Bisnow they don’t plan to break ground on many multifamily projects in 2026.

Just 1,502 market-rate units started construction citywide in 2025, down from a peak of nearly 7,000 three years earlier, according to Yardi Matrix. Last year represented the city’s fewest construction starts since 2013.

The number of units coming online is also falling as projects that started during the multifamily boom reach completion. Deliveries last year were down 37% from the 2024 peak of almost 6,000. Yardi is projecting 3,412 deliveries in 2026, a year-over-year drop of 9%.

To make the financial math for new projects work, developers say they need more help from the city. 

They support a proposal Mayor Cherelle Parker floated in November to provide a 20-year tax abatement for conversions. But some would like to see the abatement expanded to cover all new multifamily construction, and they oppose tying affordability requirements to it. 

“It is the only material suggestion on the table that is actionable solely on the city government level that would actually move the needle,” Alterra Property Group Managing Partner Leo Addimando said.

While multifamily developers across the country are dealing with a difficult environment, Philadelphia has some unique market dynamics that make it especially difficult to start projects. 

A wave of new development got underway as builders raced to beat the expiration of a previous 10-year apartment construction tax abatement at the end of 2021, leading to a supply glut in the city. Those units have largely come online, and the pipeline behind them has thinned. 

“The factors that really helped with the boom of multifamily were gone,” Riverwards Group Managing Partner Mo Rushdy said. “The deals are not penciling out.”

The margins for multifamily development are particularly slim in Philadelphia, Rushdy said.

While Philly had the nation’s fifth-highest construction costs last year, ahead of Washington D.C. and Boston, most of its neighborhoods have low rents compared to other major Northeastern cities. They generally fall below $3 per SF outside Center City.

Elevated insurance costs have also hit multifamily developers hard. Rushdy said his premiums have gone up more than 50% in the past three years and now sit at roughly $800 per unit.

In that climate, he said Riverwards has reoriented toward for-sale single-family homes.

Post Brothers co-founder Matt Pestronk said restrictive zoning overlays, like the one requiring 20% affordability for any new construction of 10 units or more in broad swaths of West Philly, have taken certain neighborhoods off the table. He said Post Brothers has sold all of its holdings there.

“That’s the most obvious place to me geographically,” Pestronk said of West Philly. “There’s been no permits there and nothing going forward.”

He, Rushdy and Addimando all said a version of the 20-year abatement Parker first floated in November will help make otherwise infeasible projects pencil.

Her pitch to double the existing 10-year residential abatement for residential conversions was mostly centered around office transformations but also includes industrial and former school buildings that could be repurposed as residential.

“We need more housing. More affordable housing. And we need it now,” Parker said in November. “We do not need any more vacant office buildings.”

The mayor’s conversion-centric vision for a new abatement was made possible by the state budget passed in Harrisburg last year, which expanded the longstanding Local Economic Revitalization Tax Assistance Act from one decade to two. It would still need to be fleshed out and passed by the city council to become law in Philly.

“The 20-year abatement can absolutely push a deal that is not financeable into being a financeable job,” Rushdy said.

But that depends on exactly what the final legislation ends up looking like.

Pestronk and Addimando said they support the proposal and wanted it extended to all new multifamily construction in the city.

Council Member Jamie Gauthier, who leads the Committee on Housing, was pushing an affordability requirement for any new residential projects that receive the abatement.

Gauthier spokesperson Harrison Feinman reiterated that stance in a statement provided to Bisnow last month.

“Philadelphia’s housing crisis is an emergency, not an inconvenience to be shoved aside,” he said. “Where there’s a will, there’s a way, and savvy developers have always been able to adapt to market conditions — if they want to.”

Rushdy, Addimando and Pestronk warned that tying an affordability requirement to a tax abatement could negate any financial upshot and keep them on the sidelines in 2026.

“You gave me an incentive in one hand to push the deal and then you took it away,” Rushdy said of that possibility.

“Let’s not screw it up,” he added.

Without an affordability requirement, Addimando estimated that the abatement would help a developer squeeze an extra 150 to 200 basis points of total leveraged return out of an office-to-residential conversion.

He said lenders want to see projects with an internal rate of return close to 20%, which is hard to come by in Philadelphia. The abatement could help many proposals get across the finish line.

Requiring 5% of any new units built through the abatement to be affordable at 60% of the area median income would nullify any upshot for developers, Addimando said.

They could shoulder making up to 10% of units affordable to people making 80% to 120% of AMI, he said, but at that point, the legislation wouldn’t be targeting the most vulnerable Philadelphians whom lawmakers like Gauthier are looking to help.

With all the headwinds they are facing, Pestronk expects multifamily developers to focus on familiar neighborhoods like Center City and Northern Liberties in 2026 instead of pushing into new frontiers.

He said Philly is at the beginning of a new cycle after a strange post-pandemic stretch and that lenders are more risk-averse as a result. But for developers that are able to make new projects work — or who have existing apartments in their portfolio — he thinks the dynamics are shaping up well for owners.

“We’re headed into a market where there is going to be a clear housing shortage,” he said.

“There is clearly absorption. … Supply is probably going to be in equilibrium or in favor of owners by spring,” he added.